Economist and Member of Parliament for Tano North, Dr. Gideon Boako is questioning the feasibility of the government’s plan to scrap some nuisance taxes without introducing new taxes.
The former spokesperson and technical economic advisor to the former president, Dr. Mahamudu Bawumia, reveals that the strategy of the government in scrapping these nuisance taxes is impossible under the current IMF Bailout Program.
This claim from the financial economist comes on the heels of the insistence of the finance minister-designate, Dr. Cassiel Ato Forson that the government will scrap all the taxes described as nuisance without introducing any new taxes to make up for the revenue shortfall. The topic of scrapping nuisance taxes is generating much debate.
Appearing before the Appointments Committee for his vetting, Dr. Ato Forson announced that instead of introducing new taxes, it would rather cut expenditures to offset the revenue shortfall.
But Dr. Gideon Boako says per the country’s IMF Debt Sustainability Analysis, Ghana’s debt service potential is matched to its revenue and not debt service to expenditure. This he said to explain that just reducing expenditure alone would not resolve the fiscal imbalances caused by cutting taxes.
“Cutting expenditure does not address the problem. Because, in an actual sense, if you look at our debt sustainability analysis, the key thing that is embedded in the IMF program is debt service to revenue ratio. It’s not debt service to expenditure ratio,” Dr. Boako indicated.
He added, “So you may cut expenditure, but your debt service will be matched with revenue, which is a key component of the IMF program. So when you scrap the nuisance taxes, there’s a revenue shortfall. You need an increased revenue to match the debt service better.”
He therefore noted that this strategy of the government to scrap nuisance taxes without alternative revenue measures might hit the rocks because the IMF will insist on making up for the loss in revenue.
The economist says, “It is not a matter of expenditure. So how do you then increase revenue to make up for the shortfalls that you have created by scrapping these nuisance taxes? The IMF will insist that. The only thing you can go around it is to introduce another tax.”
In his view, the MP for Tano North foresees the government introducing new taxes through the backdoor since that is the only way the IMF can approve the decision to scrap these taxes.
“If they indeed want to scrap E-Levy, Betting tax, the COVID-19, the emission taxes, the only other thing they can do in order to match up with their debt service to revenue ratio as enshrined in the IMF program and captured in the Debt Sustainability Analysis is to have another tax introduced to the backdoor to make up for the shortfall,” he argued.
The scrapping of these nuisance taxes is estimated to create a revenue gap of about GH¢ 6 billion annually representing about 3% of total domestic revenue. The decision has generated a huge debate in the country as many analysts and economists have expressed split opinions.
With this new development bothering on the current IMF program, it is unclear how the new administration will tackle the issue going forward regarding scrapping nuisance taxes.
Meanwhile, the finance minister-designate at the vetting also insisted that scrapping these taxes won’t hurt the economy but will bring relief to Ghanaians and businesses. It is now the problem of meeting the IMF requirements while ensuring that Ghanaians get the needed relief.
